Friday, September 15, 2006

To Budget or Not to Budget ...

We use budget-free money management.

I define budgeting as a formal detailed process for planning and tracking available money and spending activities. I’ve managed my money both ways, with and without a budget. Without a budget is much better. However, it requires more upfront discipline.

I find detailed budgeting frustrating because I have to track and categorize every expense. Thus, every expense is scrutinized for evaluation and adjustment. I don’t want to do that. (By the way, I am a very detailed person and very good at math.)

The approach I like is to save a percentage of my salary, then create a separate savings fund for future large expenses (e.g. new roof on house, vacation, car, college or furniture) and, finally, spend the rest. It’s somewhat like having three jars in which to divide our money. If there is money left over in the spending account, we carry it over to the next month. Of course, if we run out of money, we can’t spend anymore.

The main benefit is that we don’t need to worry about how much we spend on each element, e.g. eating out, entertainment, food or gas. We just need to manage the total amount spent and the elements are self managing. The hard part which requires the upfront discipline is that we take out about 30% of our before tax income (20% for savings, and 10% for future large purchases), before we ever start spending.

This is not financial or saving advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC

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